Dr Kohl: Management Advice: Debt, Marketing and People
12/3/2018
Dr. Dave Kohl
grain falling into a container

Dave Kohl

 During one of my summer seminars involving young farmers and ranchers, I was asked a multifaceted question: “What advice can you offer for new producers related to debt management, grain marketing and people management?”

Let’s start out by discussing debt management. Unless handed a silver spoon of equity, many young producers carry large amounts of debt with little equity. Their debt to asset ratio may be 70 percent or higher. If this is your situation, you need to develop a well-thought-out business plan to compensate for the lack of equity and manage the risk of having higher debt levels. Producers with limited equity must exhibit high levels of economic production per acre and per asset with reasonable costs. If you experience a good year, use your profits to build some cushion by preserving some working capital, specifically cash. Working capital is a measure of liquidity, calculated using current assets minus current liabilities. Ideally, your level of working capital should be greater than 20 percent of your annual operating expenses. In addition, pay down your obligations on time to build your credit score.

I must admit that grain marketing is not my expertise; however, my observations indicate that producers must be cognizant of their cost of production when marketing grain. This knowledge allows you to make an informed decision regarding when to sell in order to cover all costs. Making some profit consistently is better than taking the risk of market volatility to get a “home run.” Scott Mickey, a former student of mine and a farm business consultant at Clemson University, suggests marketing some of the crop during the planting season rather than waiting until the fall harvest. His research indicates that the average benefit over a 30-year period was $0.19 per bushel for corn, $0.25 per bushel for soybeans and $0.15 per bushel for wheat. Do not let your ego get in the way when making marketing decisions; yes, you may leave some money on the table in certain cycles.

Lastly, let’s briefly discuss people management. Many good assessment tools and programs can help you develop your people management skills. One recommendation is investing in a personality profile for yourself and your associates. I personally have used the DiSC profile. This assessment indicates behavioral differences in how we respond to conflict, what motivates us, what causes us stress and how we solve problems. When all team members know these behavioral differences about others on the team, communication is improved.

While I could discuss each of these topics at length, this brief summary provides some basic management advice to lead you in the right direction. A good mentor can also be useful in guiding new farmers and ranchers a long way in many of these challenges.

 
Dr. Kohl is Professor Emeritus of Agricultural Finance and Small Business Management and Entrepreneurship in the Department of Agricultural and Applied Economics at Virginia Polytechnic Institute and State University. Dr. Kohl has traveled over 8 million miles throughout his professional career and has conducted more than 6,000 workshops and seminars for agricultural groups such as bankers, Farm Credit, FSA, and regulators, as well as producer and agribusiness groups. He has published four books and over 1,300 articles on financial and business-related topics in journals, extension, and other popular publications.


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